Introduction

Curaçao used to be part of the Netherlands Antilles but as of 2010 is an independent country within the Kingdom of the Netherlands. The Netherlands Antilles (and therefore Curaçao) was used frequently in the past for tax planning purposes (Dutch sandwich structures) but due to the introduction of a 8,3% dividend withholding tax on dividends from the Netherlands to the Antilles these structures have become less attractive. In more recent times holding companies in Curaçao were used to own Dutch Coop entities with the aim to eliminate (Dutch) dividend withholding tax.

Two developments are important in this regard:

1) Potential impact of EU case law on existing Netherlands-Curaçao structures
On 23 December 2011 the Dutch Supreme Court has requested an EU prejudicial ruling in two cases in which a Dutch company distributed a dividend payment to its parent company in the Netherlands Antilles (e.g. Curaçao). Pursuant article 11 (3) of the current Tax Regulations for the Kingdom (“TRK”), 8,3% dividend tax was withheld by the Netherlands. In both cases the tax payers argued that the levy of dividend withholding tax is in breach with the EU ‘freedom of capital’ (article 63 TFEU).

2) New TRK between the Netherlands and Curaçao
On 12 December 2011 the Netherlands and Curaçao reached an agreement on the main issues regarding a new TRK in order to prevent double taxation between both countries.

Tax news

1) Potential impact of EU case law on existing Netherlands-Curaçao structures

Pursuant to the current TRK a 8,3% withholding tax on dividends has to be withheld by the Netherlands on dividend distributions to Curaçao. Tax payers have argued in pending court cases that the levy of withholding tax on dividends is in breach with the EU 'freedom of capital' (article 63 TFEU).

The Court of Appeal previously ruled that the Netherlands Antilles could not qualify as a 'third country' for which the freedom of capital could apply. However, based on the ruling of the ECJ in the Prunus-case (C-384/09) the Dutch Supreme Court has now questioned whether this is indeed correct and requested for two prejudicial rulings:

1. Could the Netherlands Antilles, which can be considered as an Overseas Country and Territory ("OCT") of the Netherlands, indeed qualify as a third country to which article 63 TFEU applies?
2. If the Netherlands Antilles can be considered as a third country, does the stand-still clause of article 64 TFEU applies?

Pursuant to the stand-still clause, an EU Member State is allowed to maintain a specific limitation on the freedom of capital in the event this limitation already existed on 31 December 1993. The TRK already existed on 31 December 1993, however, various amendments to the relevant articles of the TRK have been made in 2002, resulting in a different effective tax rate on dividend distributions made by a Dutch company to its parent company in the Netherlands Antilles. Therefore the stand-still clause may not be applicable The outcome of the prejudicial rulings is not clear at the moment.

Should the ECJ rule that the freedom of capital indeed does apply to the own OCTs of EU Member States and the standstill-clause has no impact due to the TRK amendments of 2002, the Netherlands was not allowed to levy any dividend withholding tax.

2) New TRK between the Netherlands and Curaçao

On 12 December 2011 the Netherlands and Curaçao reached an agreement on the main issues regarding a new TRK in order to prevent double taxation between both countries. The old TRK dates from 1964 but has been amended several times in the past. It is intended that the new TRK can be applied as from 1 January 2013. The actual text of the TRK is not yet available but the main topics are:

• The general dividend withholding tax rate pursuant to the new TRK will be 15%;
• For "active" companies an 0% dividend withholding tax rate for qualifying participation can apply;
• For existing participations of at least 25% which do not qualify for the 0% dividend withholding tax rate, there is a different applicable regime until 2019, with a withholding tax rate of 5% for qualifying participation;
• Anticipating on the new TRK, the anti-abuse clause mentioned in article 35a of the current TRK (with regard to the taxation of the substantial shareholding) will not apply in 2012;
• The new TRK will contain a clause on exchange of information on tax matters conform OECD principles.

It is to be expected that covenant will be signed by both countries ultimately on 1 May 2012.

Taxand’s Take

These developments are important for existing structures between the Netherlands and Curaçao and may offer opportunities for future tax planning. The main takeaways are that:

1. Pending the outcome of this ECJ ruling, we recommend companies who are confronted with dividend withholding tax on dividend distributions from the Netherlands to the Netherlands Antilles, to file a timely objection against the levy of this dividend withholding tax, taking the position that the payment thereof is incompatible with the EU freedom of capital
2. The new TRK may offer opportunities to reduce or eliminate (Dutch) dividend withholding tax. Please note however that strict conditions will apply to the application of the 0% dividend withholding tax rate.
3. There have been discussions whether the Dutch substantial shareholding ("aanmerkelijk belang") regime could apply to current Coop structures which have a Curaçao entity as the parent entity under the anti-abuse clause in the current TRK. It now seems that the Dutch tax authority will not apply this anti-abuse clause in 2012 (and possibly until 2019).
    

VMW Taxand and Taxand Curaçao will closely monitor these developments, can advice clients how to anticipate on these developments and, if necessary filed objections against pending dividend withholding tax claims.